Bloomberg Plan: Merge Fannie, Freddie Into Government-Owned Entity
Democratic presidential candidate Mike Bloomberg announced Tuesday he would merge Fannie Mae and Freddie Mac into a single government-owned mortgage guarantor, as part of a larger package of initiatives “to reform Wall Street and put the financial system to work for every American.”
An announcement from the Bloomberg campaign said merging Fannie and Freddie would “ensure taxpayers are properly compensated for loan guarantees and low-income households are well served.”
Bloomberg said his plan would gradually merge Fannie and Freddie into a single, fully government-owned mortgage guarantor, “to ensure that taxpayers are fully compensated for the risks they are assuming – and that lower-income households are well served.”
The plan calls for the guarantor to transfer downside risk to private investors via specialized securities, retaining the catastrophic risk that only the government can bear.
In September, the Trump Administration announced proposals to reform Fannie and Freddie – and remove them from control under the Federal Housing Finance Agency, where they have been since September 2008 (and have received $190 billion in taxpayer dollars).
“Eleven years later, the GSEs remain in conservatorship and continue to be supported by a Treasury commitment to keep them solvent,” Treasury Secretary Steven T. Munchin said at the time. “The continued conservatorships of the GSEs have perpetuated far-reaching government influence over the housing finance sector. The lack of reform has left taxpayers exposed to future bailouts.
Bloomberg on Tuesday criticized the Trump approach, with the campaign characterizing it as a plan “to approximately the same form that set them up for failure: a quasi- governmental hybrid in which private shareholders benefit in good times, and taxpayers stand by to cover losses when crises arise.”
Community Banks
Bloomberg also called for changes to regulations governing community banks, including mortgage rules that detail how lenders must verify a borrower’s ability to pay his or her mortgage. The campaign says this “complicates the kind of know-your-customer lending at which community banks excel.”
The campaign wants to allow community banks to “whomever they deem creditworthy,” as long as they keep the loans on their books and have a simple equity to assets ratio of at least 10 percent, high supervisory ratings, and no significant trading or derivative operations.